Today the Insider looks at seemingly divergent issues which converge in a striking manner: federal involvement in mine safety (MSHA enforcement), federal prosecution for workers comp fraud, and the ongoing saga of work in the mines. It's a complex picture, but one which resolves into a single focus: the exploitation of the people who work in mines.
MSHA and the Phantom Miners
We begin with an article by Frank Thomas in USA Today. The recent disaster at the Sago mines killed 12 miners. We were all momentarily saddened by their hastily penned farewell notes to their families, but that was then, and this is now. It turns out that MSHA had found numerous violations in the Sago mine prior to this disaster. But to determine fines, MSHA uses a bizarre math: they multiply the violation by the number of miners exposed to the specific danger. In 90% of Sago's violations in 2004 and 2005, inspectors said one person was endangered. You send a crew into a mine, but MSHA comes up with a count of one! As a result of this peculiar math, the fines prior to the disaster were minimal.
Here are some specific examples cited by Thomas in the article, quoting federal inspectors:
• On Aug. 16, 2005, an inspector found a main escape path "obstructed by concrete blocks." On Nov. 8, 2005, an escapeway was "not being maintained in a safe condition to assure passage of anyone." Sago got six citations for blocking escapeways miners use to flee a fire or explosion. Each citation said one miner was endangered. The mine paid $60 fines for two violations. The amounts of the four other fines are being decided.
• On Aug. 16, 2005, an inspector found "chemical smoke" being blown toward areas where two mining teams were working. A team typically has eight to 10 miners. The citation said one miner was endangered. A fine is being determined.
• Sago was cited for 22 violations from July 2004 to December 2005 for "accumulation of combustible materials" — coal dust and coal chunks that can spread fires and explosions. All 22 violations said one miner was endangered. MSHA fined the mine a total of $1,768 for 17 violations and is deciding fines for the five others.
Thus, on the prevention side, MSHA's enforcement efforts were seriously undercut by an unwillingness to accurately count the miners. MSHA blew an opportunity to put real leverage into enforcement before the disaster occurred.
More Phantom Miners
Now the second story. Meg Fletcher has an interesting article in Business Insurance about a case of workers comp fraud in Tennessee. Once again, undercounting of miners is a key to the situation. Gary Slater ran several leasing companies that provided workers for the mines. He operated companies with deceptively similar names: for example, Carol Dale Contracting Inc and Carol-Dale Inc. He would secure workers comp for one of the entities, but not for the other. He employed over 100 miners, but only about 15 were formally covered by a workers comp policy.
When a worker was injured, Slater would either buy them off or, in the case of a more serious injury, he would move the employee from the payroll of his uninsured company to that of his similarly named insured entity. Then he would file a claim. As a result of his gross understatement of payrolls, he was able to defraud two insurance companies of over $6 million in premiums.
Unfortunately for Slater, his scheme had one fatal flaw: by absorbing the losses for over 100 people, the premium for his insured entity (with a payroll of only 15 people) was vastly understated. So his rate of injury was extremely high (even in the high risk world of mining), and his experience rating went through the roof. As a result, the insurers began to investigate.
Slater was done in by his own success. As a result of avoiding comp premiums, he generated huge profits that had to be hidden. So he set up an elaborate money laundering scheme involving phony invoices for trucking services. Because his criminal activity involved both the mails (mailing key documents including fraudulant application forms for insurance) and money laundering, the investigation was able to benefit from robust federal resources. After his partners in crime pled guilty and agreed to cooperate, Slater's conviction was a slam dunk. He has been sentenced to nine years in prison and ordered to pay more than $5 million in restitution.
Ghosts of Living Workers
These two story lines converge in the hard-scrabble lives of the miners. The common theme seems to be that miners literally do not count. MSHA cannot see them, so mine owners, instead of being financially motivated to fix safety problems, avoid heavy fines. The owners in some cases don't even hire the workers - they lease them from the likes of Mr. Slater, who in turn hides the workers off the payroll and avoids paying taxes and benefits.
Every day thousands of people put on their gear and go where none of us would go. They live in constant fear. They never see the sun at work. Even if they survive from shift to shift, they face long-term health hazards. These "ghost workers" move among us, as we turn on the lights, crank up the heat, and log onto the internet. We cannot function without them, but we, in turn, are doing a very poor job of making their work safe and of rewarding them for their sacrifices.